How ETFs Are Dominating the Stock Market (SPY, XLF)

Exchange-traded funds (ETFs), which drew more than $400 billion worth of inflows in the last year, have become the most actively traded securities on stock exchanges, according to Bloomberg. These securities have enjoyed this robust trading volume as investors flock to passive investment strategies and the ETFs' assets under management (AUM) continue to expand, recently surpassing $3.8 trillion. (For more, see also: The Main Attractions of ETF Investing.)

ETFs such as the SPDR S&P 500 ETF Trust (SPY), which provides exposure to 500 blue-chip stocks, now account for the bulk of trades, Bloomberg reported. Stocks have been losing ground, as last year, only three of the 15 most heavily traded securities were stocks, Credit Suisse Group AG (CS) data reveals.

Top-Traded ETFs

SPY, which had more than $200 in AUM at the time of report on January 15, 2016, had experienced an average three-month trading volume of more than 87 million shares, ETFdb.com figures reveal. Financial Select Sector SPDR Fund (XLF), which is more industry specific, had enjoyed an average three-month trading volume of more than 78 million shares at the time, according to ETFdb.com. iShares MSCI Emerging Markets Index ETF (EEM) has also benefited from robust trading as of late, as its average three-month trading volume exceeded 63 million.

ETFs Replacing Stocks

Investors have been flocking to ETFs since these securities provide them with a means of obtaining easy exposure to different regions, sectors, groups of assets or even investment strategies, according to MarketWatch. In addition to harnessing them for the purpose of passive investing, many traders are leveraging ETFs as part of their short-term strategies. Traditionally, investors turned to stocks to achieve such objectives. (For more, see also: 6 Popular ETF Types For Your Portfolio.)

"What we are seeing is investors are increasingly using ETFs as a replacement for individual stocks," Todd Rosenbluth, senior director of ETF and mutual fund research for independent research firm CFRA, told Bloomberg. "That happened in 2016 and it's going to continue in 2017 and beyond."

Compare Popular Online Brokers

Provider

Name

Description

×

The offers that appear in this table are from partnerships from which Investopedia receives compensation.